Deck 11: Reporting and Interpreting Owners Equity

Question 1

Net income increases when treasury stock is sold for an amount in excess of its cost.

Answer 1

False

Question 2

Stockholders' equity decreases when a company purchases treasury stock.

Answer 2

True

Question 3

Net income decreases when treasury stock is sold for an amount less than its cost.

Answer 3

False

Question 4

A company's assets and liabilities both decrease when a previously declared cash dividend is paid.

Question 5

There would be 100,000 shares of common stock outstanding when the number of shares authorized was 150,000, issued shares totaled 120,000, and 20,000 shares were being held in the treasury.

Question 6

Total stockholders' equity increases when treasury stock is sold for an amount less than its cost.

Question 7

Earnings per share increases when a company purchases treasury stock.

Question 8

Shares which a corporation has the ability to issue, as documented in its charter in the state where incorporated, are outstanding shares of stock.

Question 9

The declaration by a corporation's board of directors of a cash dividend on common stock creates a liability on the declaration date.

Question 10

Shares of stock held as treasury stock do not have voting rights or the right to receive dividends.

Question 11

Earnings per share is calculated by dividing net income by the number of outstanding shares of common stock at year-end.

Question 12

Total assets remain the same when a company uses cash to purchase treasury stock.

Question 13

Most investors who are retired people prefer to receive their return on investment in the form of stock price appreciation rather than in dividends.

Question 14

The issue of $1 par value common stock for $10 per share results in a $9 credit to the capital in excess of par account for each share issued.

Question 15

When a company acquires treasury stock, assets and stockholders' equity both decrease.

Question 16

The issue of $5 par value common stock for $18 per share results in an $18 credit to the common stock account for each share issued.

Question 17

Treasury stock is a corporation's own stock that was issued and then repurchased, and is still held by the corporation.

Question 18

Total stockholders' equity of Grasse Company is not affected when a stockholder sells shares of Grasse Company stock to another stockholder.

Question 19

A company's assets and stockholders' equity both decrease when a cash dividend is declared by its board of directors.

Question 20

Common stockholders have voting rights and can declare cash dividends.

Question 21

When a company issues common stock in exchange for cash, a cash inflow from a financing activity is reported.

Question 22

During 2014, Thomas Corporation repurchased some shares of its own common stock. What effect did this transaction have on 2014 stockholders' equity and earnings per share, respectively? $\begin{array}{lll}&\underline{\text { Stockholders' Equity }}&\underline{\text { Earnings Per Share }}\\\text { A. } & \text { Decrease } & \text { No effect } \\\text { B. } & \text { Increase } & \text { No effect } \\\text { C. } & \text { Decrease } & \text { Decrease } \\\text { D. } & \text { Decrease } & \text { Increase }\end{array}$

A) Option A
B) Option B
C)Option C
D)Option D

Question 23

The declaration and distribution of a 2-for-1 stock split results in a reduction of retained earnings.

Question 24

Watson Company has provided the following data about its common stock: • Par value is $1 per share
• 10,000,000 authorized shares
• 4,300,000 shares are outstanding
• 4,700,000 shares are issued
How many shares of treasury stock are there?

A) 0.
B) 400,000.
C)5,300,000.
D)5,700,000.

Question 25

The dividend yield ratio is dividends per share divided by the number of shares outstanding.

Question 26

The declaration of a stock dividend by a corporation's board of directors creates a liability on the declaration date.

Question 27

Which of the following represents the number of shares currently owned by investors?

A) Authorized shares.
B) Issued shares.
C)Outstanding shares.
D)Treasury shares.

Question 28

Which of the following statements is false?

A) Common stockholders have a residual claim on assets in the event of liquidation.
B) Shares of stock held in the treasury are subtracted from the number of issued shares in the determination of the number of outstanding shares.
C)Common stockholders have voting rights at annual stockholder meetings.
D)Corporations are governed by their stockholders.

Question 29

Preferred stock often has a preference over common stock in the distribution of assets in the event of dissolution of the corporation.

Question 30

The declaration and payment of a cash dividend on common stock results in a reduction of the issuing corporation's total stockholders' equity.

Question 31

The declaration and issuance of a stock dividend results in a reduction of the issuing corporation's total stockholders' equity.

Question 32

The dividend yield ratio increases when the market price per share increases.

Question 33

When a company reissues treasury stock, it creates a cash inflow from an investing activity because treasury stock is an investment asset on the balance sheet.

Question 34

Rye Company has provided the following information: • Number of issued common shares, 225,000
• Net income, $500,000
• Number of authorized common shares, 400,000
• Number of treasury shares, 25,000
What is Rye's earnings per share?

A) $2.50
B) $1.25
C)$2.00
D)$1.33

Question 35

Kirova Company has provided the following information: • Number of issued common shares, 900,000
• Net income, $1,000,000
• Number of authorized common shares, 1,000,000
• Number of outstanding common shares, 800,000
• Number of treasury shares, 100,000
What is Kirova's earnings per share?

A) $1.43
B) $1.25
C)$1.11
D)$1.00

Question 36

When a company pays its previously declared cash dividend, an investing cash outflow is reported.

Question 37

The dividend yield ratio increases when a cash dividend is paid.

Question 38

Which of the following does not represent a description of shares of stock presented on the balance sheet?

A) Authorized shares.
B) Issued shares.
C)Outstanding shares.
D)Contributed shares.

Question 39

Preferred stockholders do not have voting rights but do have a preference with respect to dividend payments.

Question 40

A stock split results in the reduction of the par or stated value per share and a proportionate increase in the number of shares outstanding.

Question 41

Which of the following statements about earnings per share (EPS) is correct?

A) Increased net income would cause earnings per share to decrease.
B) Issuance of more common shares would cause earnings per share to increase.
C)Purchasing treasury shares would cause earnings per share to decrease.
D)EPS is calculated using the number of common shares of stock outstanding.

Question 42

CBA Company reported total stockholders' equity of $85,000 on its balance sheet dated December 31, 2014. During the year ended December 31, 2015, CBA reported net income of $10,000, declared and paid a cash dividend of $2,000, and issued additional common stock for $20,000. What is total stockholders' equity as of December 31, 2015?

A) $117,000.
B) $113,000.
C)$109,000.
D)$115,000.

Question 43

Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $50 per share when they were repurchased at a cost of $47 per share and have a $1 par value?

A) Option A
B) Option B
C)Option C
D)Option D

Question 44

Which of the following journal entries does not reflect the initial cash sale of shares of common stock? A. Cash
$\quad$ Common stock (no par)
B. Cash
$\quad$ Common stock (par value)
$\quad$ Capital in excess of par
C. Cash
$\quad$ Common stock (stated value)
D. Cash
$\quad$ Common stock (stated value)
$\quad$ Gain on sale of stock

A) Option A
B) Option B
C)Option C
D)Option D

Question 45

Which of the following journal entries is correct when common stock is initially issued for cash at a price in excess of the stock's stated value? A. Cash
$\quad$ Common stock
B. Cash
$\quad$ Common stock
$\quad$ Capital in excess of stated value
C. Cash
$\quad$ Common stock
$\quad$ Retained earnings
D. Cash
$\quad$ Common stock
$\quad$ Gain on sale of stock

A) Option A
B) Option B
C)Option C
D)Option D

Question 46

RKJ Company has provided the following: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares were issued for $9 per share
• 65,000 shares are outstanding
Which of the following statements is correct based only on the above facts?

A) Common stock is reported at $630,000 on the balance sheet.
B) Additional-paid in capital is reported at $260,000 on the balance sheet.
C)Common stock is reported at $350,000 on the balance sheet.
D)Treasury stock is reported at $45,000 on the balance sheet.

Question 47

A company reported the following asset and liability balances at the end of 2013 and 2014: $$\begin{array} { l r r } & \underline { 2013 } & \underline { 2014 } \\\text { Total Assets } & \$ 6,800,000 & \$ 7,600,000 \\\text { Total Liabilities } & 3,200,000 & 3,600,000\end{array}$$ During 2014, cash dividends of $50,000 were declared and paid, and common stock was issued for $100,000. How much was the 2014 net income?

A) $400,000.
B) $480,000.
C)$350,000.
D)$300,000.

Question 48

Which of the following statements is false?

A) The declaration of a cash dividend creates a liability as of the date of record.
B) The date of record is irrelevant with respect to recording a liability for a cash dividend.
C)The dividend payment date is when the dividend liability is reduced.
D)The dividend liability for a cash dividend is created on the declaration date.

Question 49

RKJ Company has provided the following: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares have been issued
• 65,000 shares are outstanding
Which of the following statements is correct?

A) RKJ has 35,000 shares of treasury stock.
B) RKJ has 30,000 shares of treasury stock.
C)RKJ can reissue an additional 35,000 shares of common stock.
D)RKJ can issue an additional 30,000 shares of common stock.

Question 50

CGJ Company has provided the following: • 200,000 shares of $5 par value common stock are authorized
• 140,000 shares of common stock were issued for $11 per share
• 130,000 shares are outstanding
Which of the following statements is false?

A) Common stock is reported at $700,000 on the balance sheet.
B) Additional-paid in capital is reported at $840,000 on the balance sheet.
C)Stockholders' equity decreased $110,000 when the treasury stock was purchased.
D)There are 10,000 shares of treasury stock.

Question 51

Which of the following journal entries is correct when no-par common stock is initially issued for cash? A. Cash
$\quad$ Common stock
B. Cash
$\quad$ Common stock
$\quad$ Capital in excess of par
C. Cash
$\quad$ Common stock
$\quad$ Retained earnings
D. Cash
$\quad$ Common stock
$\quad$ Gain on sale of stock

A) Option A
B) Option B
C)Option C
D)Option D

Question 52

A company purchased 1,000 shares of treasury stock for $38,000 cash. The treasury stock was initially issued for $24,000 and had a $9,000 par value. Which of the following statements incorrectly describes the effect of the treasury stock purchase?

A) Net income is unchanged.
B) Earnings per share increases.
C)Total assets remain the same.
D)Stockholders' equity decreases.

Question 53

Which of the following statements about earnings per share is correct?

A) Increased net income would cause earnings per share to decrease.
B) Issuance of more common shares would cause earnings per share to increase.
C)Purchasing treasury shares would cause earnings per share to decrease.
D)It is calculated using the number of common shares of stock outstanding.

Question 54

A company purchased treasury stock for $19,000. The treasury stock was initially issued for $12,000 and had a $5,000 par value. Which of the following statements correctly describes the effects of the treasury stock purchase?

A) Net income increases by $7,000.
B) Net income decreases by $7,000.
C)Stockholders' equity increases $12,000.
D)Stockholders' equity decreases $19,000.

Question 55

Irish Corporation issued (sold) 10,000 shares of its no-par common stock for $70 per share. The bylaws established a stated value of $10 per share. The transaction would increase the common stock account on the balance sheet by how much?

A) $0.
B) $600,000.
C)$100,000.
D)$700,000.

Question 56

Which of the following statements is correct?

A) A treasury stock purchase for less than the amount of its original issue cost results in a decrease in total stockholders' equity.
B) A treasury stock purchase for less than the amount of its original issue cost results in an increase in total stockholders' equity.
C)A treasury stock purchase for an amount equal to the amount of its original issue cost results in no change to total stockholders' equity.
D)A treasury stock purchase for more than the amount of its original issue cost results in an increase in total stockholders' equity.

Question 57

Which of the following statements about treasury stock transactions is correct?

A) The total number of shares issued increases when treasury stock is purchased.
B) The total number of shares authorized changes when treasury stock is purchased.
C)Gains and losses on treasury stock transactions are reported on the income statement.
D)A stockholders' equity account is debited when treasury stock is purchaseD.Treasury stock is a contra-equity account with a debit balance.

Question 58

RKJ Company has provided the following: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares have been issued
• 65,000 shares are outstanding
Which of the following statements is correct?

A) RKJ has 35,000 shares of treasury stock.
B) RKJ has 30,000 shares of treasury stock.
C)RKJ can resell 5,000 shares of common stock.
D)RKJ can issue an additional 35,000 shares of common stock.

Question 59

Which of the following statements incorrectly describes earnings per share?

A) Earnings per share is a ratio calculated per common share.
B) An increase in the market price per common share does not result in a decrease in earnings per share.
C)An increase in dividends per share results in an increase in earnings per share.
D)The reissue of treasury stock decreases earnings per share.

Question 60

Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $40 per share when they were repurchased at a cost of $44 per share and have a $1 par value?

A) Option A
B) Option B
C)Option C
D)Option D

Question 61

A stock dividend:

A) Results in a transfer of retained earnings to capital in excess of par.
B) Increases the number of shares outstanding and involves a pro rata reduction in the par value per share.
C)Is accounted for in exactly the same manner as a stock split.
D)Results in a transfer of retained earnings to capital in excess of par and also increases the number of shares outstanding and involves a pro rata reduction in the par value per share.

Question 62

A company reported total stockholders' equity of $170,000 on its balance sheet dated December 31, 2014. During the year ended December 31, 2015, the company reported net income of $20,000, declared and paid a cash dividend of $4,000, declared and distributed a 10% stock dividend with a $5,000 total market value, and issued additional common stock for $40,000. What is total stockholders' equity as of December 31, 2015?

A) $234,000.
B) $226,000.
C)$231,000.
D)$221,000.

Question 63

Atkins Company had 20,000 shares of $5 par value common stock outstanding prior to a 10% common stock dividend declaration and distribution. The market value of the common stock on the declaration date was $11. Which of the following statements correctly describes the effect of the common stock dividend and declaration?

A) Retained earnings decreased $22,000.
B) Retained earnings decreased $10,000.
C)Total stockholders' equity decreased $22,000.
D)Total stockholders' equity decreased $10,000.

Question 64

Which of the following statements is correct?

A) The dividend yield and earnings per share both have the same denominator.
B) The dividend yield and earnings per share both have the same numerator.
C)Dividends per share are used in calculation of both earnings per share and dividend yield.
D)Net income is used in the calculation of earnings per share but not in the calculation of dividend yielD.Earnings per share equals net income divided by the average number of common shares outstanding. Dividend yield equals dividends per share divided by market price per share.

Question 65

Wendell Company provided the following pertaining to its recent year of operation: • Common stock with a $10,000 par value was sold for $50,000 cash.
• Cash dividends totaling $20,000 were declared, of which $15,000 were paid.
• Net income was $70,000.
• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value.
• Treasury stock costing $9,000 was sold for $7,000.
How much did Wendell's capital in excess of par increase during the recent year of operation?

A) $60,000.
B) $58,000.
C)$56,000.
D)$24,000.

Question 66

Dora Company declared and distributed a 10% stock dividend on 20,000 shares of issued and outstanding $5 par value common stock. The market price per share was $9 on the declaration date and was $10 on the distribution date. Which of the following correctly describes the accounting for the declaration and distribution of the stock dividend?

A) Retained earnings decreased $20,000.
B) Capital in excess of par increased $10,000.
C)Common stock increased $18,000.
D)Retained earnings decreased $18,000.

Question 67

A company reported total stockholders' equity of $540,000 on its balance sheet dated December 31, 2014. During the year ended December 31, 2015, the company reported net income of $60,000, declared and paid a cash dividend of $18,000, declared and distributed a 10% stock dividend with a $15,000 total market value, sold treasury stock costing $12,000 for $15,000, and issued additional common stock for $70,000. What is total stockholders' equity as of December 31, 2015?

A) $640,000.
B) $670,000.
C)$667,000.
D)$655,000.

Question 68

Katie Company had 40,000 shares of $2 par value common stock outstanding prior to a 40% common stock dividend declaration and distribution. The market value of the common stock on the declaration date was $10. Which of the following statements incorrectly describes the effect of the common stock dividend and declaration?

A) Retained earnings decreased $32,000.
B) Capital in excess of par remained the same.
C)Additional Paid in capital increased $128,000.
D)Total stockholders' equity remained the same.

Question 69

Wendell Company provided the following pertaining to its recent year of operation: • Common stock with a $10,000 par value was sold for $50,000 cash.
• Cash dividends totaling $20,000 were declared, of which $15,000 were paid.
• Net income was $70,000.
• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value.
• Treasury stock costing $9,000 was sold for $7,000.
How much did Wendell's contributed capital increase during the recent year of operation?

A) $15,000.
B) $73,000.
C)$58,000.
D)$75,000.

Question 70

Which of the following correctly describes the effect of declaring and distributing a common stock dividend?

A) Total stockholders' equity decreases.
B) Total stockholders' equity remains the same.
C)The number of shares outstanding increases while the par value of each share decreases.
D)The number of shares outstanding decreases while the par value of each share increases.

Question 71

Which of the following statements correctly describes either the dividend yield or earnings per share?

A) The dividend yield decreases when net income increases.
B) Earnings per share are per share of both common and preferred stock.
C)The dividend yield increases when the market price per share decreases.
D)Earnings per share decreases when dividends per share decrease.

Question 72

Wendell Company provided the following pertaining to its recent year of operation: • Common stock with a $10,000 par value was sold for $50,000 cash.
• Cash dividends totaling $20,000 were declared, of which $15,000 were paid.
• Net income was $70,000.
• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value.
• Treasury stock costing $9,000 was sold for $7,000.
How much did Wendell's retained earnings increase during the recent year of operation?

A) $32,000.
B) $25,000.
C)$29,000.
D)$27,000.

Question 73

The payment of a previously declared cash dividend has an overall effect of:

A) Reducing retained earnings and reducing liabilities by the amount of the dividend.
B) Reducing retained earnings and increasing contributed capital by the same amount.
C)Reducing assets and reducing liabilities by the amount of the dividend.
D)Reducing both assets and retained earnings by the amount of the dividenD.The payment of a previously declared dividend decreases the asset, cash, and decreases the liability, dividends payable.

Question 74

A company reported the following asset and liability balances at the end of 2013 and 2014: $$\begin{array} { l r r } & \underline { 2013 } & \underline { 2014 } \\\text { Assets } & \$ 150,000 & \$ 180,000 \\\text { Liabilities } & \$ 70,000 & \$ 80,000\end{array}$$ If the company paid dividends totaling $5,000, what is the amount of net income for 2014?

A) $20,000.
B) $105,000.
C)$80,000.
D)$25,000.

Question 75

Which of the following statements is correct?

A) A 2-for-1 common stock split decreases both earnings per share and total stockholders' equity.
B) A 10% common stock dividend decreases both earnings per share and total stockholders' equity.
C)A 2-for-1 common stock split increases both the number of common shares outstanding and total stockholders' equity.
D)A 30% common stock dividend increases the number of common shares outstanding and does not affect total stockholders' equity.

Question 76

A company reported total stockholders' equity of $340,000 on its balance sheet dated December 31, 2014. During the year ended December 31, 2015, the company reported net income of $40,000, declared and paid a cash dividend of $8,000, declared and distributed a 10% stock dividend with a $10,000 total market value, purchased treasury stock costing $12,000, and issued additional common stock for $60,000. What is total stockholders' equity as of December 31, 2015?

A) $432,000.
B) $410,000.
C)$444,000.
D)$420,000.

Question 77

Wendell Company provided the following pertaining to its recent year of operation: • Common stock with a $10,000 par value was sold for $50,000 cash.
• Cash dividends totaling $20,000 were declared, of which $15,000 were paid.
• Net income was $70,000.
• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value.
• Treasury stock costing $9,000 was sold for $7,000.
How much did Wendell's total stockholders' equity increase during the recent year of operation?

A) $107,000.
B) $84,000.
C)$98,000.
D)$112,000.

Question 78

On December 15, 2013, the board of directors of Cross Corporation declared a cash dividend, payable on January 8, 2014 of $.80 per share on the 2,000,000 common shares outstanding. On December 15, 2013, Cross Corporation should

A) not prepare a journal entry because the event had no effect on the corporation's financial position until 2014.
B) decrease retained earnings $1.6 million and increase expenses $1.6 million.
C)decrease retained earnings $1.6 million and increase liabilities by $1.6 million.
D)decrease cash $1.6 million and decrease retained earnings $1.6 million.

Question 79

Which of the following statements is false?

A) Both stock splits and stock dividends increase the number of common shares issued.
B) Both stock splits and stock dividends increase the number of common shares outstanding.
C)Stock splits reallocate amounts between retained earnings and contributed capital accounts.
D)Both stock splits and stock dividends have the impact of reducing the market price of the stock.

Question 80

Chicago Clock Corporation issued a 3-for-2 stock split of its common stock, which had a par value of $100 before the split. What dollar amount of retained earnings should be transferred to the common stock account?

A) Par value of $100 per share.
B) Market value per share on the issue date.
C)Half of the previous total amount in the common stock account.
D)Retained earnings are not transferred to the common stock account.